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Obamacare Bends the Cost Curve--Upward

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Obamacare Bends the Cost Curve--Upward

September 24, 2013

Back in 2008, three eminent Harvard economists who were advising the Obama campaign—David Cutler, David Blumenthal, and Jeffrey Liebman—wrote a memo claiming that Senator Obama’s health-care plan could reduce national health spending by $200 billion a year. As Kevin Sack recounted in the New York Times, the authors of that memo then took that figure, “divided [it] by the country’s population, multiplied for a family of four, and rounded down slightly to a number that was easy to grasp: $2,500.”


Mr. Obama then took that number on the campaign trail, insisting that his health plan would “lower your premiums by up to $2,500 per family per year.” This YouTube video features just a few of the times that he made this promise:

Last week, the Obama administration’s Centers for Medicare and Medicaid Services issued a rather different prediction: that “the [Affordable Care Act] is projected to . . . increase cumulative spending by roughly $621 billion” from 2014 to 2022. To be clear, that’s spending on top of the normal health-care inflation that would have happened if Obamacare had not been passed. So much for “bending down the cost curve,” as the president often liked to say his law would do.

Yesterday, over at my Forbes blog, my colleague Chris Conover paid tribute to those three Harvard economists and their favored president, by employing the same arithmetic they did to calculate how much more Americans would spend on health care due to Obamacare. He took the $621 billion, divided by the U.S. population, and multiplied by four.


“Simplistic?” Chris asked. “Maybe, but so too was the President’s campaign promise. And this approach allows us to see just how badly that promise fell short of the mark. Between 2014 and 2022, the increase in national health spending (which the Medicare actuaries specifically attribute to the law) amounts to $7,450 per family of 4.” Chris put together a chart that compared Obama’s 2008 promise to the Obama administration’s 2013 projection:

As you might expect, certain corners of the Left were not happy. Igor Volsky of ThinkProgress put up a blog post claiming that Conover’s math was “totally wrong,” because a couple of pro-Obamacare economists told him so. Paul Van de Water, a progressive budget wonk, “described this calculation as one of the stupidest things he’s read in a long time.”

(Van de Water, for reasons unclear, did not offer his assessment of the intelligence of the president or his three Harvard advisers. I asked Judd Legum, the editor of ThinkProgress, if his site had ever run a comparable critique of Obama’s 2008 promise; he declined to answer.)

Van de Water told Igor that the cost of college education doesn’t increase if the federal government subsidizes college education; therefore, the cost of health care doesn’t increase if the federal government subsidizes health care.

These assertions defy logic and experience. In general, subsidizing a service increases demand for that service, which in turn increases its price. In addition, those subsidies don’t magically fall from the sky, but are paid by taxpayers.

Van de Water had a few more whoppers on his menu, though. He declared that, under Obamacare, “employer-sponsored insurance . . . is not being affected to any significant extent.” I guess he hasn’t spoken to the AFL-CIO, which passed a resolution at its quadrennial convention, held this month, declaring that the law will “drive the costs of collectively bargained, union administered plans, and other plans that cover unionized workers to unsupportable levels.”

Van de Water continues that “an average . . . doesn’t mean anything for anyone,” because the poor will benefit from subsidies. Well, yes, the poor will benefit from subsidies, which means that the average taxpaying family will face even higher cost increases due to Obamacare. Igor’s article makes no mention of the fact that subsidies aren’t free, but are in fact funded by taxpayers.

If ThinkProgress wants to try to mislead the public into thinking that subsidies have no costs, that’s their choice. It’s a pretty common sentiment on the left, where Other People’s Money is an unlimited resource. But taxpayers have every right to be concerned that the so-called Affordable Care Act will cost them a great deal.


Avik Roy is a Senior Fellow at the Manhattan Institute. You can follow him on Twitter at @avik.

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